Nigeria’s ambitious plan to secure a $5 billion oil-backed loan from Saudi Arabia’s state-owned oil giant Aramco—a deal that would have marked the country’s largest oil-backed financing agreement to date—has encountered significant delays. The negotiations, which had gained momentum late last year, are now slowing down due to a combination of falling crude oil prices and mounting concerns among financial backers.

The proposed loan, if successful, would not only have infused much-needed foreign exchange into the Nigerian economy but also signaled a strategic breakthrough for Aramco, as it explores new investments across Africa. However, recent global market conditions have created a more cautious lending environment, with stakeholders wary of Nigeria’s oil production stability and repayment capacity.

Inside the Deal: Oil for Cash Strategy Revisited

At the core of the arrangement is Nigeria’s long-standing financial strategy: leveraging future crude oil output to access immediate funding. This model, while controversial, has been used several times by the country to shore up foreign reserves, stabilize the naira, or cover fiscal gaps in the national budget.

Under the current proposal, Nigeria would commit future barrels of crude oil as collateral to secure the $5 billion facility. In return, lenders—backed by Aramco’s involvement—would release cash up front, offering the federal government short-term liquidity.

The deal gained traction following a bilateral meeting between President Bola Tinubu and Saudi Crown Prince Mohammed bin Salman during the Saudi-Africa Summit in Riyadh in November 2023. The summit offered a platform for deeper energy partnerships between the Gulf and African nations, and Tinubu’s government was keen to court long-term investment from the kingdom.

Why the Talks Are Stalling

Despite the initial enthusiasm, multiple red flags have since emerged. According to sources cited by Reuters, banks initially expected to support the transaction have grown uneasy due to the recent slump in global crude oil prices. Brent crude, which once traded above $90 per barrel in 2023, has seen significant downward movement in 2024, hovering around or below the $80 mark.

This decline directly affects the economics of any oil-backed facility. The lower the oil price, the more barrels Nigeria must commit to generate the same repayment value—raising the specter of over-leveraging the country’s already tight oil supply.

Moreover, lenders are expressing doubts about Nigeria’s ability to meet its future oil delivery obligations, especially given the country’s ongoing production challenges and security concerns in the Niger Delta.

Production Constraints Weigh Heavily

Nigeria’s oil sector, once the backbone of its economy, has been plagued by persistent setbacks in recent years. Output has steadily declined due to:

• Underinvestment in exploration and infrastructure

• Frequent oil theft and pipeline vandalism

• Delays in upstream project approvals

• Operational inefficiencies across state and private partners

Currently, Nigeria reportedly allocates over 300,000 barrels per day (bpd) of crude to service existing oil-backed loans, particularly a previous facility arranged with Afreximbank. One of those loans is scheduled to be fully repaid by the end of this month. However, the burden remains significant.

In addition, the Nigerian National Petroleum Company (NNPC) must also allocate crude oil to joint venture partners like Shell, Seplat, and Oando to cover operating costs and production obligations. This leaves a limited volume of oil available for any new financing agreements—including the proposed Aramco deal.

Adding another layer of complexity, Oando PLC is expected to manage the physical offtake logistics for the crude deliveries tied to the Aramco loan. This arrangement would require precise coordination, especially in light of Nigeria’s infrastructural limitations and export bottlenecks.

Financial Implications for Nigeria

For Nigeria, the delay represents a missed opportunity to ease pressure on its foreign exchange market. The country continues to face persistent dollar shortages, putting downward pressure on the naira, which has seen sharp depreciation over the last year.

The central government had hoped the Aramco loan would offer a fresh injection of dollar liquidity—helping to stabilize reserves, finance imports, and offer breathing room to monetary authorities trying to manage inflation and currency volatility.

In similar fashion, the government had previously secured a $3.3 billion oil-backed loan with Afreximbank, designed to boost the economy and support the exchange rate. The final $1.05 billion tranche of that facility was disbursed in April 2024, with crude oil priced at $65 per barrel and approximately 90,000 bpd set aside for loan repayment.

What This Means for Aramco

From Aramco’s perspective, the Nigerian deal was poised to be its first large-scale financial engagement in the country, and possibly the beginning of deeper investments in West Africa’s oil-rich markets.

Saudi Arabia, through Aramco, has been exploring ways to diversify its oil interests, especially in upstream, downstream, and petrochemical sectors across Africa. Nigeria, with its large reserves and strategic location, presents a compelling case—but not without risk.

The current stalemate could delay or alter Aramco’s approach, potentially reducing the size of the loan facility or restructuring its terms. It also sends a message to other international investors about the challenges of doing large-scale oil deals with Nigeria under current conditions.

What’s Next? Outlook for the Negotiations

While the loan discussions have not been called off entirely, insiders say progress has slowed considerably. A final agreement may depend on several evolving factors:

• Recovery in global oil prices

• Improved confidence in Nigeria’s production capacity

• More attractive loan terms or risk mitigations

• Reassurances from NNPC or federal authorities

President Tinubu’s administration continues to pursue aggressive economic reforms and investment-friendly policies, but must now balance its urgent need for funds with the realities of oil market volatility and production limits.

Conclusion: A Cautionary Tale in Resource-Backed Financing

Nigeria’s stalled talks with Aramco serve as a stark reminder of the fragility of oil-backed financing models—especially in economies with production instability and heavy debt exposure. While such loans offer immediate relief, they also create future obligations that are increasingly difficult to manage as global conditions shift.

Unless Nigeria can stabilize its oil sector, boost production, and restore confidence among financiers, large-scale deals like the Aramco loan may remain out of reach—limiting the country’s options in a time when liquidity is desperately needed.